It's Now Easier for a First-time Buyer to Get a Mortgage
If you've been on the internet in the past decade, you've heard that millennials are killing everything from cereal (R.I.P Cinnamon Toast Crunch) to napkins. But probably one of the most popular on the list of things millennials are killing is the real estate market.
Word on the street is they're buying so much coffee and avocado toast that they just can't afford to buy that new starter home. In reality, we can probably look to massive student loan debt as the culprit that's holding millennials back from early homeownership.
The real reason millennials aren't buying starter homes
We could bore you with the latest statistics on how much new graduates owe in student loans and how that compares to a mortgage payment. But you get it. It's hard to save for a down payment and make mortgage payments when you have a big chunk of your monthly income going to student loans.
Even if they can save for the downpayment and handle the monthly expenses a lot of millennials are still getting denied a mortgage because their student loan debt is making their debt to income ratio (the amount of money they have coming in vs. the amount going out to cover monthly debts) too high. In fact, that's the main reason most applicants get rejected--and student loan debt is the main culprit for the high debt-to-income ratio (DTI).
Now its easier to get a mortgage thanks to Fannie Mae and Freddie Mac
As of July of 2018, Fannie Mae and Freddie Mac have raising their debt-to-income ceiling from 45% to 50%, which mean more people with student loan debt can qualify for loans.
If you make $50,000 a year and spend $2,000 a month on your student loans, car payments, credit cards, and other debt you'd have a DTI of 48%. Under the old ceiling, you'd be disqualified from getting approved for a mortgage. But with the new standards, you could get approved as long as the rest of your finances were healthy.
Keep in mind you'll still need to meet all the other financial criteria for getting a loan. That means you'll want to start getting your finances in order before you get ready to apply.
So, what do you think? Will the new rules make you race out to your nearest lender? Or are you happy to keep renting until those student loans are paid off?
Want to buy a house but not sure where to start? Let us walk you through it with our first-time home buyer guide!